FORESTRY UPDATE by Gary Allen Burns 7-20

Sound forest management is dependent upon anticipated rates of return for various investment decisions.

Rates of return are called discount rates when used in a discounted cash flow (DCF) — the process of converting future cash flows into a present value (PV).

The net present value (NPV) then is the present value minus the initial investment.

The discounted cash flow analysis projects all costs and revenues for a time period and then discounts the net income (revenues minus costs) back at a discount rate.

The NPV basically factors in the time value of money, and if the NPV exceeds the cost, then the project may be worthwhile to undertake.

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